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Consider an AA-rated bond and BBB rate bond with one-year probabilities of default of 2% and 4% respectively. Both bonds are rated by the S&P

Consider an AA-rated bond and BBB rate bond with one-year probabilities of default of 2% and 4% respectively. Both bonds are rated by the S&P credit rating agency. a- Explain what is meant by the rating given to each bond? b- Calculate the default correlation if the joint probability of default is 0.15%?

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